On 1 January 2013, the new Law of Ukraine “On Employment of Population” (No. 5067-VI) (the “Law”) came into effect. The major highlights of the Law which employers should be aware of are as follows:

1. Employment of foreigners

As was the case previously, the Law stipulates provisions ensuring that a foreigner can be employed based on a work permit; such a work permit should be obtained by the employer and is issued for a period of up to 1 year subject to prolongation (i.e., in practice the work permit may be issued for 3 months only). The work permit is issued on the condition that there are no qualified employees in Ukraine (in the particular region where required) capable of performing such type of work or there is sufficient substantiation for the use of the foreigner’s work.

As was the case previously, the Law also stipulates a provision requiring that a work permit be obtained for engagement of foreigners seconded by a foreign employer to Ukraine to perform certain works (services) under an agreement between a Ukrainian entity and a foreign entity. However, now such a permit shall be issued on the condition that “the percentage of qualified foreigners engaged under the agreement does not exceed ½ of the total number of individuals employed under the agreement.” At the moment, it is not clear what this condition entails and how it will be applied in practice.

The Law decreased the penalty amount to be imposed on the employment of a foreigner without a work permit from 100 times the minimum wage to 20 times the minimum wage in respect of each foreigner so employed. The same penalty amount shall now be imposed on the act of engaging a foreigner on the basis of other agreements (for example, an agreement between a Ukrainian entity and a foreign entity as discussed above).

The Law additionally stipulates a penalty for employment of a foreigner on terms and conditions other than those stipulated by the work permit (for example, a different position) or by a different employer. The penalty amounts to 10 times the minimum wage applicable on the date of violation, per each foreigner so employed.

The list of foreigners who may carry out their activities in Ukraine without obtaining a work permit has been extended to 12 categories with more detail being provided, including inter alia:

  • employees of foreign representations registered in Ukraine in accordance with the procedures established by law;
  • representatives of foreign marine (river) shipping and airlines who service such companies in Ukraine;
  • employees of foreign mass media accredited to work in Ukraine; and
  • foreigners who come to Ukraine to participate in the implementation of international technical assistance projects.

2. Quota for socially-protected employees

If an enterprise employs more than 20 employees the Law sets forth a quota which must be observed of 5% of an average number of employees in the preceding calendar year in respect of employing certain categories of employees, in particular:

  • one of the parents supports children under 6 years old or without a spouse, raises a child under 14 years old or a disabled child, or without a spouse, supports a child born disabled (regardless of the age) and/or a category 1 disabled person (regardless of the reason for disability);
  • individuals with 10 or less years left before they obtain the right to an aged pension under Article 26 of the Law of Ukraine “On Mandatory State Pension Insurance”;
  • orphans and children deprived of parental support;
  • individuals released from imprisonment or forced medical treatment;
  • young people who have graduated from or terminated their studies in general educational institutions, vocational schools and higher education institutions, mandatory military service or alternative (non-military) service (within six months after completion or termination of such education or service) and who are being employed for the first time; and
  • individuals over 15 years of age who, upon consent of one of their parents or the person replacing their parents, may be employed as an exception.

If an employer fails within 1 year to meet the quota for employment of the above categories of individuals, such employer shall be imposed with a penalty for each unsubstantiated refusal to grant employment to such individuals within the quota criteria. The penalty amounts to 2 times the minimum wage applicable at the moment when the violation was revealed. Notably, the legislation provision is worded in such a way that a penalty may be imposed only if there is an “unsubstantiated” refusal.

One should also remember that in accordance with the Law of Ukraine “On Fundamentals of Social Protection of Disabled Individuals” an enterprise is already subject to a quota for employment of disabled individuals in the amount of four percent of an average annual number of employees and if an enterprise employs between eight and 25 employees the quota is one working place. Enterprises hiring less than eight employees are exempted from such quota.

3. Outsourcing

Entities which hire employees for their further work in Ukraine with other employers under labor arrangements (the “outsourcing company”) shall operate on the basis of a permit. The procedure for issuance of such permit is established by the Cabinet of Ministers of Ukraine.

Notably, the outsourcing company may outsource employees to one or more other employers provided that such outsourcing is stipulated by a collective agreement of such employer. The outsourcing is also subject to the consent of the trade union of such employer. In addition, the outsourcing company shall:

  • enter into an outsourcing agreement with the employer;
  • pay a salary to the employee in an amount not less than the amount of the minimum wage established by law and not less than the salary received by an employee of the employer for performance of similar work;
  • ensure that the employee is provided with work and leisure time on the terms and conditions set forth for other employees of the employer by the collective agreement and internal labor rules;
  • accrue and pay a single contribution for mandatory social insurance for the benefit of the employee in accordance with industry professional risk classes applied to the employer which hires the employee; and
  • not prevent the outsourced employee and the employer from entering into a labor agreement (i.e., an employer is not prohibited from soliciting an outsourced employee).

The Law prohibits an outsourcing company from outsourcing employees and employers are prohibited from engaging outsourced employees if the employer:

  • reduced the number of employees within one year;
  • failed to meet the required number of employees of underlying professions involved in technological process of the underlying production; and
  • outsources employees for work in hazardous, dangerous and heavy working conditions, and employees of underlying professions involved in technological process of the underlying production.

4. Dismissal of employees

As was the case previously, in the case of a reduction in the number of employees the employer must, in a timely and full manner, file information on scheduled mass redundancies. At present, no changes have been made to the reporting forms (Form No. 4-ПН (“scheduled redundancy”) and Form No. 4-ПН (“actual redundancy”)) as approved by Order No. 420 of the Ministry of Labor and Social Policy of Ukraine dated 19 December 2005. However, according to the Law, the penalty, in the amount of 4 times the minimum wage, shall be imposed on employers specifically for (i) the failure to submit reporting on a “scheduled redundancy” (the reporting form to be filed 2 months prior to the redundancy) rather than reporting on an “actual redundancy” (the reporting form to be filed 10 days after the redundancy) and (ii) only in the event of a “mass redundancy". According to the Law, a “mass redundancy" initiated by the employer (except liquidation of the legal entity) shall be:

  • at one time or within 1 month;
    • a reduction of 10 or more employees at the enterprise, institution or organization with the total number of employees from 20 to 100;
    • a reduction of 10% or more employees at the enterprise, institution or organization with the total number of employees from 101 to 300;
  • at one time or within a 3 month period: dismissal of 20% or more employees at the enterprise, institution or organization regardless of the total number of employees employed.

Notably, no additional clarifications regarding the reporting forms and procedure for filing the reporting forms on reduced employees have been provided thus far. This was also confirmed to us orally by the relevant officers of some district employment centers in Kyiv. Thus, from a practical standpoint, until additional clarifications are in place and in order to avoid possible additional penalties during the redundancies of employees it is recommended that employers file reporting forms on reduced employees in accordance with the procedure which was in effect prior to the Law coming to force.

5. Training of employees

The Law permits employers to enter into an agreement with an employee for delegation of an employee to an educational institution for professional training, re-training and upgrading. However, it is not clear whether this applies to foreign educational institutions as well. Such agreement may stipulate an obligation for the employee (і) to work for the employer after graduation during the period to be agreed between the parties (such period must be commensurate with the obligations of the employer for payment and length of education but not more than 3 years) or (іі) in the case of early dismissal through fault of the employee, to compensate the employer for expenses related to payment for education or a portion of such expenses in proportion to the period already worked by the employee.

6. Miscellaneous

Pursuant to the requirements of the Law, the Cabinet of Ministers of Ukraine approved by its Resolution No. 153 dated 13 March 2013 “Procedure for Compensation to Employers for a Portion of Actual Expenses Incurred as a Result of Payment of a Single Contribution for the General Mandatory State Social Insurance” (the “Procedure”). The Procedure came into effect from 20 March 2013.

The principal objective of the Procedure is to govern payment of compensation to an employer for actual expenses in the amount of 50% of the sum of the Single Contribution for the General Mandatory State Social Insurance (the “Social Contribution”) accrued with respect to each person recruited into a newly-created workplace (the “Compensation”). The Procedure applies to the employers (business entities) which, commencing from 2013, recruit employees into newly-created workplaces and pay, on a monthly basis to such employees, the salary of not less than 3 times the minimum wage within 12 months from the date of the employment agreement between the employer and the person hired into the newly-created workplace.

For the purpose of obtaining the Compensation, the employer shall file to the local Pension Fund Authority a certificate in the form prescribed by the Procedure confirming proper performance by the employer of the Compensation conditions, within 12 months from the date of the relevant employment agreement. Then the Pension Fund Authority shall, within 5 business days from the date of the filing of the certificate, submit a request to the local authority of the State Labor Inspection of Ukraine (Derzhpratsi) to confirm the information contained in the certificate. Thereafter, the local authority of the State Labor Inspection of Ukraine (Derzhpratsi) shall have one month to respond to the Pension Fund Authority regarding the outcome of their consideration of the request. Finally, the Pension Fund Authority shall, within 10 days of receipt of a response from the local authority of the State Labor Inspection of Ukraine (Derzhpratsi), reach a decision regarding payment of the Compensation to the employer.

The Compensation is paid monthly on the basis of the employer statement regarding Social Contribution payments within the next 12 calendar months following expiration of a similar period from the date of the relevant employment agreement. The Compensation is paid by means of a transfer of funds from a separate account of the Pension Fund Authority to the employer’s bank account specified in the certificate.

The right to the Compensation shall be retained by the employer in the case of replacement of an employee in the newly-created workplace but subject to compliance with the minimum salary in one month for the previous employee and replacement employee.

The employer shall forfeit the right to the Compensation in the case of a decrease in the total number of employees or in the total amount of the payroll.

The period during which the Compensation is paid to the employer shall be recorded as the period with respect to which the Social Contribution has been paid for in full.